Pension Finance Update May 2026

Strong stock markets in May drove continued improvement in pension finances. Both model plans we track¹ gained ground last month: Plan A improved more than 2% in May, ending the month up 8% for the year, while the more conservative Plan B gained 1% last month and is up more than 2% through the first five months of 2026:

Assets

Stocks gained ground across the board in May. A diversified stock portfolio gained 5% last month, ending the month up 14% for the year.

Treasury rates edged upward during May while corporate bond yields edged lower, reflecting narrowing of credit spreads. As a result, bonds were up a fraction of 1% last month, ending May close to flat through the first five months of 2026.

Overall, our traditional 60/40 gained 3% in May, ending the month up 8% for the year, while the conservative 20/80 portfolio gained more than 1% last month and is up almost 3% through the first five months of 2026.

Liabilities

Pension liabilities (for funding, accounting, and de-risking purposes) are driven by market interest rates. The first graph below compares our Aa GAAP spot yield curve on December 31, 2025 and May 31, 2026 (along with the movement in the curve last month). The second graph below shows our estimate of movements in effective GAAP discount rates for pension obligations of various duration during 2026:

Corporate bond yields fell a couple basis points in May. As a result, pension liabilities increased by less than 1% last month, ending the month flat for the year.

Summary

Continued strong stock growth and modestly higher interest rates have combined to deliver gains to pension sponsors so far this year. The graphs below show the movement of assets and liabilities during the first five months of 2026:

Looking Ahead

Sustained higher interest rates since late 2022 have substantially diminished the impact of pension funding relief during 2023-2026. Underfunded plans are likely seeing higher required contributions for the next few years.

Discount rates were close to flat last month. We expect most pension sponsors will use effective discount rates in the 5.4%-5.8% range to measure pension liabilities right now.

The table below summarizes rates that calendar-year plan sponsors are required to use for IRS funding purposes for 2026, along with estimates for 2027, including the rate “corridor” that applies to the 24-month average rates under funding relief for each segment.

¹Plan A is a traditional plan (duration 12 at 5.5%) with a 60/40 asset allocation, while Plan B is a largely retired plan (duration 9 at 5.5%) with a 20/80 allocation with a greater emphasis on corporate and long-duration bonds. We assume overhead expenses of 1% of plan assets per year, and we assume the plans are 100% funded at the beginning of the year and ignore benefit accruals, contributions, and benefit payments in order to isolate the financial performance of plan assets versus liabilities.